RATINGS AGENCY MOODY’S has said it is considering a downgrade on the debt of Spain, saying the country’s refinancing needs meant a challenging 2011.

Spain is currently rated Aa1 by the agency, but may now dead downward. Spain had, the Wall Street Journal quotes, a “vulnerability to funding stress given its high refinancing needs in 2011″.

The BBC’s Robert Peston estimates that Spain will next year have to raise about €365bn to fund the state, the “severest test” of the Eurozone in 2011.

The Financial Times said the euro fell on the news, dropping 0.5c against the dollar and also sliding against the pound, while Madrid’s Ibex 35 index fell by about 1.3%.

Spanish bond prices remained broadly flat, however, with only a modest jump from the opening value of 5.514% for ten-year borrowing, while bonds of Portugal and Ireland also saw similar widening.

The cost of a ‘Credit Default Swap’ – a type of insurance against a sovereign default – only grew marginally to 3.29%.

Gavan Nolan of Markit financial information services said Spanish CDS prices had already been “trading with implied rating below AA”.

Moody’s had been the last ratings agency to give Spain the maximum AAA rating, which it held until September.